Carbon tax triggers price rises

Airlines
Qantas
and ­
Virgin,
along with manufacturers, retailers and energy companies, are preparing to push through significant price rises to consumers to offset hundreds of ­millions of dollars in added costs that will follow the introduction of the ­carbon tax.

The major emitters that have been left out of direct compensation for the impost of the carbon tax say they would be unable to absorb the additional costs without a substantial hit to their bottom lines.

The price warnings came as ­miners lashed the carbon tax as an unfair impost on local exporters that would hinder investment and jobs growth without reducing global emissions.

“Of course people like Australia, but they are not going to endlessly pay higher and higher [prices] if they can get things cheaper elsewhere," she said on the sidelines of the Boao Forum in Perth yesterday.

Local shares fell sharply yesterday, led lower by large miners such as
Rio Tinto
and
BHP Billiton
. The 1.56 per cent fall in the local S&P/ASX 200 Index to 4582.3 points was greater than falls in Asian markets that were unnerved by weak jobs numbers out of the United States and fears of runaway inflation in China.

“The carbon tax is definitely having an impact," said Deutsche Bank’s head of research sales, Glenn Morgan.

“Those that look like they are going to be impacted are getting hit."

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From July 1, 2012, the 500 biggest polluters will have to pay $23 for every tonne of carbon ­produced. Smaller emitters and businesses, along with families, will be excluded from the tax during the ­transition to a full carbon emissions trading scheme in 2015 and will receive compensation for any increase in prices.

Qantas foreshadowed an increase in its cost base of up to $115 million in fiscal 2013, with rival Virgin Australia predicting a $45 million hit. Both airlines said they had no choice but to pass the tax on to consumers in full, equating to domestic airfare increases of an average $3.50 a ­sector and about $3, respectively.

Analysts said that while the higher airfares would fully offset the cost of the carbon tax, they could also lead to a corresponding dip in passenger demand – particularly among the most price-sensitive leisure passengers who are already reining in ­discretionary spending.

Virgin chief executive
John Borghetti
said he would be monitoring demand, and hence the addition of capacity, very closely from July 2012.

“We know through history how susceptible the leisure market in particular is to price increases, no matter how small," he said.

“This is discretionary income we’re talking about, and people don’t think along the lines of ‘that ticket is only $3 more, but I have an extra $10 in my pay so I can afford it’."

Both Mr Borghetti and Qantas’s
Alan Joyce
said they had anticipated there would be some kind of “phase-in" period for airlines, similar to how New Zealand and the European Union had dealt with the introduction of a carbon price.

A sudden rise in prices, even a relatively modest one, had the potential to reverse any recovery in domestic tourism after the past year’s natural disasters and generally weak consumer sentiment, Mr Joyce said.

Myer
chief
Bernie Brookes
said the carbon tax would force the retailer to increase prices to offset up to $6 million in extra costs created largely through its electricity use.

“Perception is a big part of it. ­People will see that they are paying more and a reticent consumer will become more reticent. It is the last thing that discretionary retailers need right now," he said.

Brick manufacturer
Brickworks
will receive no free permits under the carbon tax. It warned that the proposed carbon tax would have an impact of $12.8 million on earnings before interest and tax in its first year of operation and would lift brick prices by 6 per cent.

“We’re only one small part of the building industry so this is going to flow right through [the sector],"
Robert Millner
, chairman of Washington H. Soul Pattinson and executive chairman of Brickworks told The Australian Financial Review.

“You see these comments by the government that they’ll be compensating lower-income families. It’s rubbish. They won’t be able to make up the shortfall that the people are going to be out of pocket."

Building materials manufacturer
CSR
said it would raise prices across its non-trade-exposed divisions, which includes its brick, roof tile and plasterboard divisions.

The energy sector also warned of an increase in gas prices for consumers, with
Origin Energy
questioning whether the government would end up with the right mix of generation assets over the long term.

“You have a combination of export parity and growing demand for gas domestically that will certainly help to drive some increases in gas prices," Origin Energy managing director
Grant King
said. “The way the market works is there will be a reliable supply of electricity, but the question is how much it will cost."

BHP Billiton said it required more clarity around transitional arrangements before measuring the long-term cost impact, while Rio Tinto said it was deeply concerned the tax failed to shield Australia’s export ­sector.

“It is crucial that Australia’s contribution to the global effort is in proportion to action being taken by overseas trading rivals so as not to disadvantage important trade-exposed industries," Rio’s managing director Australia, David Peever, said.

As companies scrambled to measure the impact of the tax on their bottom lines, the political barriers to industry assistance were removed yesterday as the Greens declared they had an “open mind" on the $300 million lifeline handed to steel makers, including
OneSteel
and
BlueScope,
over the next four years. Government sources also confirmed that the $1.3 billion assistance for the coal industry would not need separate legislation that might be stymied in Parliament.